SMT. ANSHITA VIMAL JAIN,,SURAT vs. THE INCOME TAX OFFICER, WARD-2(3)(4),, SURAT

Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2007-08, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-2, Surat [in short “the ld. CIT(A)”] in Appeal No. CAS/2/219/2015-16, dated 19.12.2016, which in turn arises out of an order passed by the Assessing Officer (assessing officer) u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 [hereinafter referred to as the “Act”], dated 19.12.2016.

Grievances raised by the assessee are as follows: “(1) On the facts and in the circumstances of the case and in law, the learned CIT (Appeals), Surat's order confirming the action of the assessing officer for initiating the proceedings u/s 147 and issuance of notice u/s 148 of the Act and hence, the order passed u/s 148 of the Act making addition of Rs.69,53,846/- for the alleged bogus purchases of goods is being without jurisdiction, bad in law, perverse, arbitrary, conjectural and therefore liable to be annulled or quashed. (2) On the facts and in the circumstances of the case and in law, both the lower authorities have grievously failed to consider in the right, lawful and proper perspectives, the detailed submissions, with the explanations duly substantiated by the authentic, credible and cogent evidences for the genuine, transactions of Assessment Year. 2007-08 Anshita Vimal Jain purchase of goods and therefore, the order of the CIT (Appeals) confirming the addition of Rs. 69,53,846/- made by the assessing officer on factually incorrect inferences, but exclusively based on the report of the Investigation Wing of the department is liable to be struck down. (3) Your assessee further reserves its right to add, alter or to amend any of the aforesaid grounds before or at the time of hearing of an appeal.”

The facts of the case which can be stated quite shortly are as follows: On the basis of the information received from, the Investigation Wing Mumbai the assessing officer found that assessee has taken accommodation entries of bogus purchase bills from Gautam Jain, Prop. of M/s Mihir Diamonds of Rs.7,80,847/- and Shri Gautam Jain, Director M/s Krishna Diamond Pvt. Ltd. of Rs.61,73,099/-. The case was reopened u/s 147 of the Act and the notice u/s 148 was issued on 28.03.2014. In response to the notice the assessee filed the written submission on 28.04.2014 and enclosed a copy of the return filed for assessment year 2007-08, as being filed in compliance to notice u/s 148 of the Act. The reasons recorded for the reopening was provided to the assessee during the course of the assessment proceedings. The assessing officer found that assessee had purchased polished diamonds for Rs.69,53,946/- from M/s Mihir Diamonds and Gautam Jain by known entry operators, Gautam Jain Group who had been searched by the Investigation Wing Mumbai. Looking to the above facts, the assessing officer made addition of Rs.69,53,846/- on account of bogus purchases.

Aggrieved, the issue was taken up before the first appellate authority for relief. Learned CIT(A) held that reopening of assessment under section 147/148 was valid. Besides, on merits, Ld CIT(A) has confirmed the action of the assessing officer. Aggrieved, the assessee has come up with the present appeal.

Shri Mitish S. Modi, Learned Counsel for the assessee pleads that assessing officer has merely relied on the information passed on to him by the DDIT (Investigation Wing), Mumbai regarding the search in the case of Shri Gautam Jain and Others Group of Mumbai, indulged in bogus purchase bills/unsecured loans through their various benami concerns, without making any efforts to verify with application of his independent mind before recording such Assessment Year. 2007-08 Anshita Vimal Jain reasons for escapement of income of the relevant year. The own satisfaction of the assessing officer for the alleged escapement of income is the prerequisite condition for initiating the reassessment proceedings, which is absent in the present case. The reasons recorded by assessing officer, demonstrate that assessing officer does not apply his mind. The ld Counsel pointed out that link between the information made available to the assessing officer and the formation of belief is absent. He further pointed out that the reasons must be self-evident, they must speak for themselves. The Ld Counsel then buttress assessee’s case with the aid of various judicial precedent as well. Finally, ld Counsel prays the Bench that reassessment proceedings initiated by the assessing officer may be quashed.

Shri Deependra Kumar, Sr. DR for the Revenue contends that assessing officer got information from the Investigation wing and then applied his mind and reached on the conclusion that in assessee`s case income has escaped assessment. The reasons are recorded as per the mandate of the provisions of section 147 of the Act, therefore reasons recorded by the assessing officer are valid.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that by way of this appeal, in ground no.1, the assessee has challenged correctness of the order passed by the assessing officer under section 143(3) r.w.s. 147 of the Income Tax Act 1961 dated 27.03.2015 and stated that reassessment proceedings are invalid. Therefore, it is necessary to examine the reasons recorded (vide assessee`s paper book page no.224) by the assessing officer under section 147 of the Act, which is reproduced below:

From the above reasons recorded, it is vivid that reasons were recorded based on the information received from DDIT Investigation wing Mumbai that search was carried out by the investigation wing, Mumbai in the case of Gautam Jain & others (Surat Diamond concerns) group of Mumbai. The group is indulged in providing bogus purchase bills / unsecured loans through various benami concerns.

We note that section 147 of the Act authorizes and permits an Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that the said income for any assessment year has escaped assessment. The provisions of section 147 require that the Assessing Officer should have 'reason to believe' that any income chargeable to tax has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. We note that in assessee`s case, the reasons recorded by the assessing officer are not “reason to believe” rather these are “reason to suspect”. Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion. The Hon’ble Supreme Court in ITO vs. Lakhmani Mewal Das [1976 ]103 ITR 437 has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s.147 of the Act. The Hon’ble Court first held that the section provides that there must

The purpose behind the relevant provisions imposing condition precedent for initiating reassessment proceedings is to ensure finality of proceedings. The Act also provides that such reason must be recorded in writing before issue of notice of reassessment so as to judge the existence of such belief before initiating reassessment proceedings by issue of notice u/s.148 of the Act. The above requirements are meant to ensure that powers to initiate reassessment proceedings are not exercised in an arbitrary manner.

In view of the reasons set out above, as also bearing in mind entirety of the case, we are of the considered view that the reasons recorded by the Assessing Officer, as set out earlier, are bad in law. We, therefore, quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.

In the result, appeal of the assessee is allowed.